status: draft

Administration agreement

The Administration Agreement (separate in rated deals, often combined with servicing in warehouse deals) covers calculation agent and administrative functions. The calculation agent performs the mechanical work that determines distributions, borrowing base, and covenant compliance.

status: draft

Calculation agent duties

The calculation agent (often the servicer, a trustee, or a third-party administrator) performs the quantitative work that drives the deal.

Core responsibilities

Duty	What It Involves
Borrowing base calculation	Computing available funds based on eligible collateral
Waterfall computation	Determining payment amounts to each priority level
Covenant testing	Calculating ratios and testing compliance
Interest calculation	Computing accrued interest on each tranche
Trigger testing	Monitoring performance against amortization/default triggers
Report preparation	Producing investor/lender reports with required data

Borrowing base mechanics

The calculation agent applies the borrowing base formula to determine available funding capacity:

Start with eligible receivables (meeting eligibility criteria)
Apply concentration limits (cap exposure to single obligor, industry, etc.)
Apply advance rates (percentage of eligible balance that can be borrowed)
Subtract reserves
Result: borrowing base

Where errors occur:

Eligibility determination (is the asset eligible?)
Concentration limit application (correct excess amount?)
Advance rate selection (which tier applies?)
Reserve calculation (correct methodology?)

Waterfall computation

On each payment date, the calculation agent determines distributions:

Calculate available funds
Apply the priority of payments (waterfall)
Determine amounts to each payee
Prepare payment instructions

Complexity sources:

Sequential vs. pro rata tranches
Reserve building/release
Excess spread distribution
Trigger-based waterfall modifications

status: draft

Report preparation

The calculation agent produces the reports that capital providers and investors rely on.

Standard reports

Report	Frequency	Content
Borrowing base certificate	Per draw / monthly	Eligible collateral, concentrations, available amount
Payment date report	Per payment date	Waterfall calculation, amounts distributed
Investor report	Monthly / quarterly	Portfolio performance, trigger status, covenant compliance
Collateral report	Monthly	Detailed asset-level data
Compliance certificate	Monthly / quarterly	Financial covenant calculations

Report specifications

The administration agreement or an exhibit should specify:

Report content requirements (line items, calculations)
Format (Excel template, PDF, data file)
Delivery deadline (X business days after period end)
Recipients (trustee, rating agencies, investors, servicer)
Responsibility for errors

status: draft

Error correction

What happens when the calculation agent makes a mistake?

Discovery and notification

Errors may be discovered by:

Calculation agent’s own review
Capital provider’s or investor’s analysis
Servicer’s reconciliation
Third-party audit

Notification obligation: The calculation agent should be required to notify affected parties promptly upon discovering an error.

Correction mechanics

Error Type	Typical Resolution
Clerical error	Correct in next period; no restatement
Calculation error (immaterial)	Correct in next period; possible catch-up
Calculation error (material)	Restatement; possible true-up payment
Systemic error	Full recalculation; possible restatement of historical periods

Look-back periods

The administration agreement should specify how far back errors can be corrected:

Common provision: “Errors discovered more than [12/24/36] months after the applicable Payment Date shall not be subject to correction, and all prior calculations and distributions shall be deemed final.”

Trade-off: Longer look-back provides more accuracy but less finality. Capital providers prefer longer periods; the calculation agent prefers shorter periods.

Dispute resolution

What if the borrower or servicer disagrees with a calculation?

Required provisions:

Notice of dispute (specify the alleged error)
Discussion period (10-30 days to resolve informally)
Independent review (accountant or expert determination)
Binding resolution (expert’s determination is final)

Sample language: “If Servicer disputes any calculation, it shall provide written notice specifying the disputed amount and Servicer’s calculation within [10] Business Days of receiving the applicable report. The parties shall attempt to resolve the dispute within [15] Business Days. If unresolved, the dispute shall be submitted to the Independent Accountant, whose determination shall be final and binding.”

status: draft

Liability and indemnification

Calculation agents seek broad liability limitations because the economics of calculation agent fees do not support significant error exposure.

Standard liability caps

Liability Type	Typical Cap
Errors in calculation	Fees received (or multiple thereof)
Failure to perform duties	Fees received
Consequential damages	Excluded
Gross negligence / willful misconduct	Uncapped

Sample language: “Calculation Agent’s aggregate liability under this Agreement shall not exceed the fees actually received by Calculation Agent during the [12]-month period preceding the event giving rise to liability; provided that this limitation shall not apply to liability arising from Calculation Agent’s gross negligence or willful misconduct.”

Indemnification

The calculation agent is typically indemnified against third-party claims arising from its role:

Who indemnifies: The SPV (issuer) and sometimes the servicer or sponsor

Scope: Claims arising from calculation agent duties, except for gross negligence or willful misconduct

Carve-outs: No indemnification for:

Fraud
Gross negligence
Willful misconduct
Breach of confidentiality
Material breach of agreement

status: draft

Calculation agent selection

Who serves as calculation agent

Calculation Agent Type	When Used
Servicer	Most warehouse deals; efficient if servicer has the data
Trustee	Rated deals where independence is valued
Third-party administrator	Complex deals; independence required
Sponsor affiliate	Smaller deals; cost-conscious

Selection criteria

Familiarity with asset class
Systems capability
Track record in similar deals
Independence (if required for ratings)
Cost

Replacement

The administration agreement should address calculation agent replacement:

Resignation notice period (30-60 days)
Termination for cause (uncured breach, bankruptcy)
Successor appointment process
Transition cooperation

status: draft

Relationship to other agreements

The administration agreement interfaces with several other deal documents:

Servicing agreement

If the servicer is also the calculation agent, duties may be combined in the servicing agreement rather than a separate administration agreement. Ensure clarity on which duties fall under which compensation and liability provisions.

Credit agreement / indenture

The credit agreement defines what the calculation agent must calculate (borrowing base formula, covenants, triggers). The administration agreement defines how and by whom.

Coordination required: Defined terms must match. Calculation methodologies must be consistent. Timing requirements must be feasible.

Trust agreement

In rated deals, the trustee may have oversight of the calculation agent. The trust agreement may require trustee approval of calculation agent actions or reports.

status: draft

Common pitfalls

Ambiguous calculation methodology

The credit agreement says “calculate the Delinquency Ratio.” But how? Based on UPB or original balance? As of month-end or cut-off date? Including or excluding assets in foreclosure?

Fix: Detailed calculation methodology in an exhibit. Work through the calculation with actual numbers before signing.

Insufficient dispute rights

The calculation agent produces a borrowing base showing $5M less availability than you expect. You have no way to challenge it. You lose the funding capacity.

Fix: Dispute procedure with defined timeline, notice requirements, and independent resolution mechanism.

No error correction process

The calculation agent made an error 6 months ago. Distributions were wrong. The agreement says nothing about how to fix it.

Fix: Error correction provisions covering discovery, notification, correction methodology, and look-back limitations.

Mismatched timing

The servicing agreement requires the servicer to deliver data by the 5th business day. The administration agreement requires the calculation agent to produce reports by the 3rd business day. Mathematically impossible.

Fix: Review all timing requirements across documents before signing. Build in appropriate buffer.

Conflicting formulas

The credit agreement defines “Eligible Receivables” one way. The borrowing base certificate exhibit calculates eligible receivables differently. The calculation agent uses the exhibit. You expected the credit agreement definition.

Fix: Reconcile all formulas and definitions. If a formula appears in an exhibit, confirm it matches the definition in the agreement.

status: draft

Review checklist

Before signing, verify: